A Review and Evaluation of Industry Concentration, Specialization, Experience, and Knowledge Research in Auditing

Abstract

Through review and synthesis, we evaluate the extent to which existing auditing research supports the contention that audit firm and auditor industry concentration, specialization, experience, and knowledge improve client-relevant audit outcomes. We classify the twenty-three published auditing research studies that directly investigate these issues into two broad levels of analysis: [1] eighteen studies investigating audit firms, and [2] five studies investigating individual auditors. We summarize and critically evaluate the issues, methods, and insights in this research, and offer suggestions for improving its ability to opine on the issue we investigate. Our review suggests weak evidence supporting the arguments that: [1] audit firm industry concentration affects client-relevant outcomes [audit fees, audit quality]; and [2] individual auditor industry experience and industry specialization affect auditor industry knowledge, decision processes, and audit quality. We argue for future research directed towards identifying the: [1] synergies and costs of increasing audit firm and auditor industry specialization, and [2] interactions of functional and industry specialization. We also argue for an increased diversity of research methods in industry related auditing research.

JEL Classification: M49